Investor Series Part 1: Deciding to Build On Spec

Have you ever considered building a home on spec? It is hard to drive around northern Virginia and not notice all of the new building going on around us. And with all of the “flip” shows on TV, real estate investing is all the rage.

But is it for you?

During the last housing boom, investors were building on spec like crazy and often with very little upfront investment. In many cases, it meant no money down, no proof of income and interest only loans. All fine and dandy when the market is booming but unfortunately, real estate booms never last. And the higher they rise, the harder they fall. In 2005, the DC area housing market began to deflate. It was slow at first but after all was said and done, it was painful for a lot of people.

After the market began to recover, there wasn’t a lot of speculative building going on. Until recently. In fact, we’re working with more Investor clients than we ever have before. At one point in 2014, a third of the houses we had under construction were being built for investors. That might make someone a little nervous given the recent history of speculative building. If the market does start to slow, will they pull out? But I see a big difference in these investors…they’re INVESTED. They have made significant down payments or they’re paying in cash. It’s a completely different environment. And it’s a good one.

The DC Metro area took its share of the beating over the last 10 years. And there are still homeowners suffering from purchasing at the top of the market. But when you compare this area to other parts of the country who are still digging out from the recession, we have been somewhat insulated from the worst of it. Home values in areas like Falls Church, McLean, Arlington, Vienna and Alexandria have been increasing over the last few years. All good news for homeowners and investors.

In this series, I’ll share my knowledge on the spec market. I don’t claim to know it all but we’ve done nearly 20 spec homes in and around the beltway since 2007. Not all of them have been home runs (and I’ll share with you why) but they’ve all been successful. Topics will include deciding where & what to build, maximizing your profits and the biggest mistakes made by investor builders (in my humble opinion).

I’ll also give you some advice along the way that might help you. Which brings me to the first tip…

Tip #1 – Partner with a great builder. A great builder will see the opportunity ahead of them by doing everything possible to make YOU successful. That becomes a win, win for everyone! Because if YOU are successful, you’re likely to come back and do it again. Choose someone who sees the value in that and is looking for more than just a sale. A great builder will be looking for a partner.